A:

A V-shaped recovery depicts an economic situation where a severe downturn in the markets is met with an equally strong upturn in the markets. The V refers to the general shape a chart forms based on various data, such as unemployment, retail sales, industrial output, the shape of equity indexes or other metrics. Other recession recovery types often mentioned include the L-shape, U-shape, J-shape, W-shape and many others.

An L-shaped recession is a severe type of recession where there is be a prolonged period of flat or minimal improvements in the economy. An L-shaped recession could persist for years, essentially flatlining with years of stagnant growth. A common example of an L-shaped recession was the situation in Japan in the 1990s - an environment where loose lending standards led to a collapse in share prices and property prices. The economy started to rebound around 2003, and the time period leading up to 2003 is often referred to as the "lost decade" for Japan. This period was characterized by large bank failures, near 0% interest rates, rampant homelessness and increased government spending.

A U-shaped recovery is a more normalized recovery to a recession, where the economy gradually grows its way out of the recession. A W-shaped recovery generally starts out as a V-shaped recovery but another economic event may send the economy back down to previous lows which would be followed by another rebound to finish off the W-shape. The middle portion of the W-shape could also represent a significant bear market rally.

For more on recessions, take a look at our article Recession: What Does It Mean To Investors?

This question was answered by Joseph Nguyen.

RELATED FAQS
  1. What's the best investing strategy to have during a recession?

    Figure out how to take advantage of recessions, what assets to buy and which ones to avoid. Recessions are where some great ... Read Answer >>
  2. Why does unemployment tend to rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to have a domino ... Read Answer >>
  3. How do financial markets react to recessions?

    Learn more about the relationship between recessions and financial markets by identifying the fundamental characteristics ... Read Answer >>
  4. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ... Read Answer >>
  5. What causes a recession?

    According to the National Bureau of Economic Research (NBER), recession is defined as "a significant decline in economic ... Read Answer >>
  6. Do interest rates increase during a recession?

    Learn why interest rates do not rise in a recession; in fact, the opposite happens. Identify the factors that reduce interest ... Read Answer >>
Related Articles
  1. Investing

    Will China See an L-Shaped Recovery?

    According to a source quoted in the People’s Daily, China will experience an L-shaped recovery. Here's why.
  2. Insights

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  3. Insights

    Top 4 Things To Know About The Last Double-Dip Recession

    The financial media and investors are haunted with the prospect of a double-dip recession. We look to the past to see if a double-dip recession is in our future.
  4. Insights

    The Best Business To Be In During A Recovery (And Why)

    Where are the best places to be when an economy starts to recover?
  5. Managing Wealth

    Top 6 Recession Investing Myths

    Find out the truth about recessions and how they impact your portfolio.
  6. Insights

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  7. Insights

    Industries That Thrive On Recession

    Find out where to turn when looking to invest in a tumultuous market.
  8. Insights

    Will Your Net Worth Be Affected By A Recession?

    Here's a look at how a potential recession could impact your net worth in a negative way.
  9. Insights

    What Causes A Recession?

    Many factors contribute to a recession, but the biggest one is inflation.
  10. Insights

    A Review Of Past Recessions

    Here we look at the biggest economic declines in the U.S. since the Great Depression.
RELATED TERMS
  1. V-Shaped Recovery

    A type of economic recession and recovery that resembles a "V" ...
  2. W-Shaped Recovery

    An economic cycle of recession and recovery that resembles a ...
  3. U-Shaped Recovery

    A type of economic recession and recovery that resembles a "U" ...
  4. Jobless Recovery

    An economic recovery, following a recession, where the economy ...
  5. Recession Resistant

    An entity which is not greatly affected by a recession. Recession ...
  6. Double-Dip Recession

    When gross domestic product (GDP) growth slides back to negative ...
Hot Definitions
  1. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center